Direct Line Group Half Year Report 2021

To see the Half Year results 2021 infographic, click here


Penny James, CEO of Direct Line Group, commented: 
"I'm delighted we've made significant progress on our strategic transformation during the first half of the year at the same time as delivering strong operating profit. We returned to growth in Q2, which is testament to our diversified business model, with Commercial, Home and Rescue performing strongly. We have declared an interim dividend of 7.6 pence per share, up by 2.7% over 2020. We are also launching the second £50 million tranche of the £100 million share buyback programme we announced with our last year end results.

"In Motor we saw claims frequency remain below normal levels, fewer new car sales and a reduction in new drivers entering the market. These factors were strongest in Q1 and have started to reverse in Q2 at the same time as motor market premium stabilised. We maintained underwriting discipline throughout the first half, continuing to price for our view of risk, and this, combined with the benefits of achieving a major technology milestone with our new Motor platform now rolled out across Direct Line, Churchill and Privilege, positions us well as we look ahead. We recently announced a new partnership, with Motability Operations, demonstrating the value others place on our exemplary customer service and claims capabilities. This partnership is expected to come into effect in 2023 and to increase our Motor customer base by around 15%.

"This is an exciting and pivotal point for the business, we've completed the majority of our tech transformation, and we're starting to reap the benefits of what the new systems offer us. This is driving real momentum and means we are entering the second half of the year with ambition and confidence."

Results summary

                              H1 2021 £m H1 2020 £m Change
In-force policies (thousands) 14.471 14,633 (1.1%)
Of which: direct own brands (thousands) 7.465 7,370 1.3%
Gross written premium  1.556.5 1.580.8 (1.5%)
Of which: direct own brands  1,063.7 1.090.3 (2.4%)
Operating profit  369.9 264.9 39.6%
Combined operating profit  84.2% 90.3% 6.1pts
Profit before tax  261.3 236.4 10.5%
Return on tangible equity annualised  30.1% 19.9% 10.2pts
Divended per share - interim (pence) 7.6 7.4 2.7%
  - special (pence)  - 14.4 n/a
  30 June 2021 31 Dec 2020 Change
Solvency capital ratio post-dividends and share buyback 195% 191% 4pts

Financial highlights

  • Direct own brands in-force policies grew by 1.3% with growth across Commercial direct own brands, Green Flag and Home more than offsetting declines in Motor. Total policies reduced 1.1% as lockdown restrictions impacted partnership volumes in Travel.
  •   Gross written premium reduced by 1.5% as continued growth in Commercial, Home and Green Flag Rescue was offset by declines in Motor and Travel. During H1, we focused on maintaining the quality of our Motor book resulting in some lost competitiveness and saw reduced risk mix from lower new car sales and fewer new drivers entering the market, with Motor gross written premium falling 6.2%. The reduction was lower in Q2, as pricing in the motor market stabilised and risk mix trends started to reverse. Overall, gross written premium increased by 1.6% in Q2 compared to Q2 2020, demonstrating the benefits of our diversified business model.
  • Motor’s current-year attritional loss ratio was relatively stable at 66.9% (H1 2020: 65.5%), driven by claims frequency remaining below normal levels together with lower premium. In July, claims frequency returned close to the level assumed in our pricing and consequently we expect our Motor current-year attritional loss ratio in H2 to return closer to underlying 2020 levels, which we estimated was around 79%. 
  • Operating profit increased by £105.0 million to £369.9 million benefiting broadly equally from benign weather conditions, strong prior-year reserve releases, the non-repeat of Covid-19 impacts on Travel claims and the reversal of investment losses. Progress continued on underlying profitability following a reduction in operating expenses and good current-year trading across the book.
  • Profit before tax of £261.3 million was £24.9 million higher than H1 2020 following the increased operating profit partially offset by £91.5 million of restructuring and one-off costs which primarily relate to the Group’s site strategy announced with the full year 2020 results. 3 August 2021 1 – Proposed interim ordinary dividend of 7.6 pence per share, an increase of 2.7% over H1 2020. On or about 4 August 2021, we expect to commence the second £50 million tranche of the £100 million share buyback programme announced in March 2021. There was strong capital generation during H1 with a solvency ratio after dividends of 195%.
  • We reiterate our medium-term target of achieving a combined operating ratio in the range of 93% to 95%, normalised for weather. For 2021, following lower than normal claims frequency in Motor and strong prior-year reserve releases, we expect a combined operating ratio in the range of 90% to 92%, normalised for weather. 
Strategic highlights
  • We continued to transform into a data and technology-led insurer. With the major elements of the Motor technology transformation now complete, our focus turns to extracting the benefits from this new capability.
  • We rolled out successfully our new Motor platform to our biggest brands, Direct Line and Churchill. We are already seeing benefits in pricing sophistication and digitalisation with further benefits scheduled to come through over the next 18 months. – We saw gross written premium growth of 16.2% in Commercial which is furthest through its transformation and is demonstrating what can be achieved when new technology is paired with great service for our customers and brokers.
  • We announced our new partnership with Motability Operations demonstrating our core strengths in delivering great customer service and efficient car repair. The partnership is forecast to increase Motor gross written premium by around £500 million each year from H1 2023, with 80% reinsured back to Motability Operations. 
  • We continued to expand our claims capabilities through the acquisition of our 22nd auto services repair centre. This acquisition supports our competitive advantage in vehicle repairs and we continue to invest in capability to repair more advanced and electric vehicles. 
  • We delivered strong growth in Darwin as we continued to enhance pricing across the four main price comparison websites ("PCWs"), growing policy count to over 90,000 at the end of H1 2021, an increase of over 66% compared to the end of 2020. 
  • We continue to find new areas to innovate, including an online customer portal in claims which enables digital claims management and a new cloud-based telephony system in Green Flag which enables enhanced customer service and more efficient claims handling.
  • We remain focused on achieving our 20% expense ratio target in 2023. We completed the first key step in our new property site strategy by purchasing our head office, giving us the flexibility to fundamentally reposition the way we use our buildings and deliver long-term savings, which are incremental to our original cost target plans, in excess of £10 million each year from 2022. 
For further information, please contact: 
Paul Smith                                         
Director of Investor Relations 
Mobile: 07795811263
Will Sherlock
Group Corporate Affairs & Sustainability Director       
Mobile: 07786836562
1. Direct own brands include in-force policies for Home and Motor under the Direct Line, Churchill, Darwin and Privilege brands, Rescue policies under the Green Flag brand and Commercial under the Direct Line for Business and Churchill brands.
2. See glossary on pages 46 to 48 for definitions and appendix A – Alternative performance measures on pages 49 to 52 for reconciliation to financial statement line items.
3. A reduction in the ratio represents an improvement as a proportion of net earned premium, while an increase in the ratio represents a deterioration. See glossary on pages 46 to 48 for definitions.
4. The Group’s dividend policy includes an expectation that generally one-third of the regular annual dividend will be paid in the third quarter as an interim dividend and two-thirds will be paid as a final dividend in the second quarter of the following year.
5. Estimates based on the Group’s Solvency II partial internal model.
Forward-looking statements disclaimer
Certain information contained in this document, including any information as to the Group’s strategy, plans or future financial or operating performance, constitutes “forward-looking statements”. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms “aims”, “ambition”, “anticipates”, “aspire”, “believes”, “continue”, “could”, “estimates”, “expects”, “guidance”, “intends”, “may”, “mission”, “outlook”, “over the medium term”, “plans”, “predicts”, “projects”, “propositions”, “seeks”, “should”, “strategy”, “targets”, “will” or "would" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in several places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors concerning, among other things: the Group’s results of operations, financial condition, prospects, growth, strategies and the industry in which the Group operates. Examples of forward-looking statements include financial targets and guidance which are contained in this document specifically with respect to the return on tangible equity, solvency capital ratio, the Group’s combined operating ratio, percentage targets for current-year contribution to operating profit, prior-year reserve releases, cost reductions, reductions in expense and commission ratios, investment income yield, net realised and unrealised gains, capital expenditure and risk appetite range. By their nature, all forward-looking statements involve risk and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and/or are beyond the Group’s control. Forward-looking statements are not guaranteeing future performance.
The Group’s actual results of operations, financial condition and the development of the business sector in which the Group operates may differ materially from those suggested by the forward-looking statements contained in this document, for example directly or indirectly as a result of, but not limited to:
– United Kingdom (“UK”) domestic and global economic business conditions; – the direct and indirect impacts and implications of the coronavirus Covid-19 pandemic on the economy, nationally and internationally, on the Group, its operations and prospects, and on the Group’s customers and their behaviours and expectations;
– the Trade and Co-operation Agreement between the UK and the European Union (“EU”) regarding the terms, following the end of the Brexit transition period, of the trading relationships between the UK and the EU and its implementation, and any subsequent trading and other relationship arrangements between the UK and the EU and their implementation;
– the terms of trading and other relationships between the UK and other countries following Brexit;
– the impact of the FCA pricing practices report and any new rules and regulations arising as a result of that report and of responses by insurers, customers and other third parties;
– market-related risks such as fluctuations in interest rates, exchange rates and credit spreads;
– the policies and actions and/or new principles, rules and/or changes to, or changes to interpretations of existing principles, rules and/or regulations, of regulatory authorities and bodies (including changes related to capital and solvency requirements or to the Ogden discount rate or rates or in response to the Covid-19 pandemic and its impact on the economy and customers) and changes to law and/or understandings of law and/or legal interpretation following the decisions and judgements of courts;
– the impact of competition, currency changes, inflation and deflation;
– the timing, impact and other uncertainties of future acquisitions, disposals, partnership arrangements, joint ventures or combinations within relevant industries; and
– the impact of tax and other legislation and other regulation and of regulator expectations, interventions and requirements and of court, arbitration, regulatory or ombudsman decisions and judgements (including in any of the foregoing in connection with the Covid-19 pandemic) in the jurisdictions in which the Group and its affiliates operate. In addition, even if the Group’s actual results of operations, financial condition and the development of the business sector in which the Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. The forward-looking statements contained in this document reflect knowledge and information available as of the date of preparation of this document. The Group and the Directors expressly disclaim any obligations or undertaking to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, unless required to do so by applicable law or regulation. Nothing in this document constitutes or should be construed as a profit forecast.
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